The rare occurrence of a downtrend in supply and an uptrend in demand put the grain markets on an upward trend to close out 2020. For 2021, be prepared for a good old-fashioned acreage battle. In response, create a disciplined marketing game plan. We asked eight analysts to provide their best estimates on price direction and market strategies you can employ in 2021. Here is one of eight.
Naomi Blohm, Total Farm Marketing
Weather is the factor to watch in 2021. If the South American crop is not as robust due to adverse weather conditions, that will likely keep grain prices supported this winter. Also, the world is well aware of U.S. drought conditions.
In addition, energy needs and global energy policies will be front and center this year. Crude oil futures posted a major bottoming signal on monthly charts, and there are rumblings of China being low on coal production in some regions. A new U.S. president might entice a jockeying of Middle East power play flare-ups. I’m looking for a major crude oil rally.
Unlike the past six years, we are entering 2021 in a bull market. Demand is strong, and global grain supplies could potentially be lower.
Do make cash sales as you get to profitable points, because as 2020 taught us, one black swan can swoop in and change prices in a heartbeat. Be strategic with your marketing by creating a price floor with put options for new crop, while leaving your cash upside open on part of your crop.
If the weather is severely adverse in 2021, we are set up to see a repeat of grain prices not seen since 2012. However, timely rains might suggest the early winter rally was your best marketing opportunity.
Bull call spreads, bear put spreads and fence strategies look to provide opportunities to manage risk and opportunity. Work with an adviser who knows your risk tolerance and explains the pros and cons of each strategy.
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